In the US, only 3.2% of executives and senior manager–level employees are Black, and whilst Black people represent 13.4% of the US population, there are only 3 Black CEOs on the Fortune 500 list1, less than 1% of the total list. There are significant pay disparities too, with Black men paid 13% less than white men, and Black women 39% less than white men and 21% less than white women2. In other countries progress on ethnic diversity in leadership and board positions is equally slow.
A recent report showed that 37% of FTSE 100 companies surveyed do not have any ethnic minority representation on their boards, despite recommendations by the Parker Review Committee for all boards to have at least one director from an ethnic minority background by 20213.
In Canada, where Black people represent 3.5% of the population, they make up less than 1% of senior executives
and board members, and 75% of companies report not having representation of visible minorities at all on their boards.4
Beyond addressing discrimination issues, there is also a business case for increasing minority representation. A report by McKinsey5 suggests that diversity beyond gender can be a key corporate differentiator:
While companies in the US are required to report racial diversity data to the U.S. Equal Employment Opportunity Commission (EEOC), only 25% of US companies choose to publicly disclose this data, with an even smaller subset disclosing an annual breakdown of the representation of different ethnic minorities at various levels across the organisation.
Yet with the exception of South Africa, there are no countries where public company reporting of diversity data is of similar stature to that of companies in the US, which makes it challenging for investors to have a structured approach to voting and engagement on ethnic diversity and inclusion in the workforce across markets.
However, efforts by regulators to require “comply or explain” disclosure from companies are increasing. For example, under the Canadian Business Corporations Act (CBCA) public companies have been required since 2020 to report on the representation of four designated groups on their board of directors and senior management teams: women, Indigenous peoples, persons with disabilities and members of visible minorities. They are also required to disclose whether they have a policy, targets and strategies in place to enhance the representation of those groups at the board and executive levels. In the US, California is considering requiring companies incorporated in the state to have minimum levels of directors from underrepresented communities on the board.
Proxy advisory firm ISS also announced9 that it has been conducting outreach to companies in the US, asking them to provide the race or ethnicities of their directors and named executive executives on a voluntary, aggregated and self-identified basis.
At BMO GAM, we have been engaging and voting on issues of diversity and inclusion for a number of years, with a primary focus on gender. Our approach to race is less well established. Nevertheless, we have taken steps to develop our engagement strategy with investee companies.
In the period of January 1st 2019 to June 18th 2020, from 2219 total interactions with companies, 186 interactions were linked to workforce diversity, and 114 were linked to board diversity.
Given the limited availability of ethnic/cultural demographic data and overall workforce data, we have been engaging companies for several years on their participation in the Workforce Disclosure Initiative, seeking greater transparency from companies about their workforce management and the resulting data such as wage gaps. Measurement and disclosure are important first steps in being able to make further progress. Our engagement asks to companies centre around:
Its wide-ranging nature means that responsible investment involves a host of associated language and jargon. Here we explain some of the most commonly used terms.
6https://www.forbes.com/sites/jemimamcevoy/2020/07/01/every-ceo-and-leader-that-stepped-down-since black-lives-matter-protests-began/#7aab7b615593. * executive-level managers
14 For more information about our work in these areas, see our other Viewpoint publications on these topics.